Stock Analysis Pollie-style – Consolidated Edison – 2018.
One of my goals for 2018 for my Vrijheid Fonds, is to diversify more (for all my goals for 2018, read my Goals 2018 post). Diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. I want to position myself appropriately to protect my Vrijheid Fonds and decrease my risk factor. In order to do this, I want to diversify more by industry and sector. And furthermore I will look for stocks with a low Beta.
If we take a look at my Vrijheid Fonds, you can see that I’m low in the Utilities sector (just 2%) Therefore I’m looking tot increase my exposure in this sector. The only company that I own in this sector is Southern Company (SO), which is going to a rough time lately. So I turned my eye to a different Dividend Aristocrat. The post about their Foundation Stocks from the Dividend Diplomats inspired me and made me dive deeper into Consolidated Edison.
This analysis is on Consolidated Edison INc. (ED).
From google finance: Consolidated Edison, Inc. (Con Edison) is a holding company, which owns Consolidated Edison Company of New York, Inc. (CECONY), which delivers electricity, natural gas and steam to customers in New York City and Westchester County; Orange and Rockland Utilities, Inc. (O&R) (together with CECONY referred to as the Utilities), which delivers electricity and natural gas to customers primarily located in southeastern New York, and northern New Jersey and northeastern Pennsylvania, and competitive energy businesses, which provide retail and wholesale electricity supply and energy services. CECONY’s business operations are its regulated electric, gas and steam delivery businesses. O&R’s business operations are its regulated electric and gas delivery businesses.
Can I explain this to a 10-year old? What Does This Company Do?
Consolidated Edison, commonly known, as Con Edison of Con Ed is a company that provides electricity, gas and steam to factories and houses.
Dividend Aristocrat: ED is paying Dividend for more than 100 years in a row! And Richard Berger on Seeking Alpha called it a Dividend Zombie. It also raised their dividend for more than 40 years in a row. Its number 53 on the CCC-list from David Fish! And is a 2 star stock on Morningstar.com. This looks like a fine and solid investment. That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of ED is 3.81%. This is above the industry average of 3.44%. And almost spot on the 5 years average (3.85%). The Yield is above the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 52%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. And that is what we are looking for! If we take a look at there history we can see that they managed to lower their payout ratio the last decade. And this is good news. So also passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 3.0, 3.1, 2.7 and 1.8. With a 3-years average over 3.1%. This is not that much, and is a little bit disappointed. But is above the requirements of the Pollie-code, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. ED has a current P/E ratio is 15.0. And is lower than their 5 years average (17.27). It is below the industry average of 20.3%. This metric is on the requirements of the Pollie-code and therefore this is a pass.
EPS > 0: The EPS is 5.04. So ED also passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 10.3%. Another pass.
Market Cap. > 100M: No problem at this point. ED is one of the largest investor-owned energy companies in the United States. The Market cap. Is more than $ 23.840 B. You guested is already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 6.5. This is therefore a fail on the Pollie-code.
Stock price 52wk high-25%: The 52 wk. high and low are: 88.03 and 71.12. This means that ED will be in my buying zone when the stock price is below 83.80 ((88.03-71.12)*0,75 + 71.12). At this moment ED is trading for $77.18. Therefore it is a pass on the Pollie-code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for ED is 0.06.
Debt/Equity ratio: The Debt/Equity ratio of ED is around 1.11. This is a little bit high. I like a Debt/Equity ratio lower than 1. If we look at Consolidated Edison we see that it is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps because debt tends to be less expensive than equity because interest payments are tax-deductible. So lets see if ED can cover the interest. And this is the case; actually Earning (EBIT) covers the net interest at least three times. So no worries here for Pollie 🙂
When I look at the analysis, ED passed 9 out of 10 from the Pollie-code! The Pollie-code only failed at the Chowder rule.
If we take at the Utility sector, it is fair to say that ED is a very reliable utility company. And that is what I look for as a DGI. Consolidated Edison’s history goes back more than 130 years and they have 40 straight years of dividend increases.
That makes Consolidated Edison in my opinion a strong and reliable stock investment! And it will be a very nice addition to my portfolio. It is a stock with a high yield and as a utility stock it is safe. I certainly put ED on my watch list for my Vrijheid Fonds. And probably take action in the near future.
What are you – the readers, thoughts on Consolidated Edison? Is it a buy? Do you own it?
Please comment on my analysis and thanks for stopping by!
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